THE NATION / QUESTIONS & ANSWERS

Freddie, Fannie lend a hand to home buyers

Here's a look at Freddie Mac and Fannie Mae, publicly traded mortgage finance companies created by the federal government.

What is Freddie Mac?

It is the common name for the Federal Home Loan Mortgage Corp., based in McLean, Va.

What is Fannie Mae?

It is the common name for the Federal National Mortgage Assn., based in Washington.

What do they do?

They buy mortgages from banks, savings and loans and other mortgage lenders. Fannie Mae and Freddie Mac package some of those home loans into mortgage-backed securities, which are then sold as guaranteed investments.

What kind of loans do Fannie Mae and Freddie Mac buy?

Under their charters, the companies can buy mortgages only if the amount borrowed falls under a specified dollar level that is adjusted periodically. These are called "conforming" loans.

Currently, the limit for a conforming loan for a single-family home is $417,000. The involvement of Freddie Mac and Fannie Mae helps keep interest rates for conforming loans lower than for larger "jumbo" loans.

When were the companies created?

Fannie Mae was established in 1938 as a government-owned corporation to increase the amount of money available for home buyers. It was authorized to issue bonds and use the proceeds to purchase mortgages from lenders.

In 1954, Fannie Mae was reorganized as a corporation owned jointly by the government and private shareholders. In 1968, it was converted into a fully private corporation.

Congress established Freddie Mac in 1970 to help further expand U.S. homeownership and provide competition to Fannie Mae.